Amazon’s tax bill

Nobody likes paying taxes, and avoiding sales tax has been one of the appeals of shopping online. For Texans who make purchases from Amazon.com, however, that perk might be coming to an end; the Dallas Morning News reports that the retail giant may be running afoul of the same statute it’s citing in a legal dispute over sales tax collection with New York state:

The Texas Comptroller’s Office is investigating whether the Internet retail behemoth, with sales last year of $14.8 billion, owes Texas possibly millions of dollars in uncollected sales taxes on purchases made by its customers in the state.

Seattle-based Amazon.com has been operating a distribution center in Irving since 2006, giving it a “physical presence” in Texas, a longstanding litmus test for when sales taxes must be collected by an online or mail-order company.

The issue came to light last month after Amazon.com Inc. sued the state of New York over whether it should begin charging customers state sales taxes, citing the federal law it appears to be breaking in Texas.

Repeated e-mail and telephone messages to Amazon.com on Thursday were not returned.

For e-commerce, Texas and most states follow federal law that allows states to impose sales tax obligations on out-of-state retailers with a “physical presence” in their state. “Physical presence” is defined as anything from a store, warehouse or distribution center to a sales agent or delivery truck, according to the Texas Comptroller.

The state’s tax-collecting agency didn’t know Amazon.com was operating a facility here until this week when The Dallas Morning News called to ask why the online powerhouse wasn’t charging Texas customers sales taxes, said Robin Corrigan, the comptroller’s team leader for sales tax policy.

Oops! It will be interesting to see how Amazon responds, and if they try to have it both ways on the tax issue.

But this is really just part of a much larger issue. When we bought almost everything in person, at a physical store, this was not a big issue. But it is now.

In 2006 alone, Texas lost an estimated $541 million in state sales taxes on Internet and mail-order sales, Comptroller Susan Combs said after a December meeting of the working coalition in Dallas.

And guess what: you might like not paying tax when you’re clicking the checkout button in an online store, but that money will come from somewhere.

Nobody likes paying taxes, but nobody likes it when their local government runs out of money, either. Adding to the problem for local governments is the appeal of a ban on sales tax on internet purchases to federal lawmakers; it’s a way to be anti-tax without actually having to make any hard federal budget choices. Initially, the argument was that online retailing was a new industry that needed protection to grow. It was a questionable idea then, but it’s ludicrous to argue in 2008 that Amazon needs protection from your local bookstore or that iTunes needs space to build market share.

The flip side of this, of course, is that collecting sales tax is not easy. With fifty states and thousands of localities each having their own tax rates and tax policies – no tax on food here, tax on food there, no tax on clothes under a certain amount here, tax-free shopping week there, and so on – the whole process does represent a burden on retailers.

There are 44 states participating in the Streamlined Sales Tax Project, an effort to make sales tax collection simpler so that it’s practical for retailers to collect it. It remains to be seen if this will work.

None of this, of course, really applies to Amazon, which seems to have just been ignoring the law – at the expense of Texas taxpayers. Still, if the mess of sales tax isn’t cleared up, we should expect local governments to lose out on revenue – and to pay it some other way.